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Navigating Healthcare Reform: Understanding Employer Mandates

Gain insights on ACA compliance, penalties, and reporting obligations impacting employers. Learn to determine large employer status and avoid penalties effectively.

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Navigating Healthcare Reform: Understanding Employer Mandates

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  1. Presented by: Heather K. Brickman and Barbara A. Erickson of Hodges, Loizzi, Eisenhammer, Rodick & KohnLLP Arlington Heights Peoria O’Fallon IASPA Seventh Annual Conference January 24, 2014 Are We There Yet? The Long Trip to Health Reform Implementation

  2. I. OVERVIEW The Patient Protection and Affordable Care Act (P.L. 111-148) (“Affordable Care Act”) Overview of provisions selected for discussion

  3. II. The Employer Mandate Affordable Care Act, various provisions including §1513 and §10106, as amended by §1003 of the Health Care and Education Reconciliation Act of 2010 (P.L.111-152) Determining FTE status for mandated coverage, IRC 4980H; 78 Fed. Reg. 218, 78 Fed. Reg. 16445, 78 Fed Reg. 218; IRS Notice 2011-36, 2012-17, and 2012-58

  4. II. The Employer Mandate cont… Penalties, IRC 4980H, 78 Fed. Reg. 25909 Reporting obligations, IRC 6055, 6056, 78 Fed. Reg. 54996

  5. Employer Shared Responsibility Provision of ACA is this mandatory healthcare? does employer have to pay for healthcare? May Result in Accessibility Payment or “Penalty tax” for Employers Beginning 2015 II. The Employer Mandate cont…

  6. In general, beginning in January 2015, Internal Revenue Code Section 4980H may impose a penalty tax on applicable large employers if a full time employee receives coverage at an Exchange and that coverage is subsidized by the government. II. The Employer Mandate cont…

  7. Whether or not a penalty tax is imposed depends on whether the large employer offers health insurance coverage to at least 95% of its full-time employees and dependent children that is also: Affordable Has minimum value Provides minimum essential benefits II. The Employer Mandate cont…

  8. Initially, if an employer is not considered an applicable large employer under the ACA, it does not have to pay or play and the penalty tax will not apply. Thus, first question to determine is whether you are an “applicable large employer.” II. The Employer Mandate cont…

  9. An applicable large employer is one that employed at least 50 full-time employees (including full-time equivalents) in the preceding calendar year (based on actual hours). A full-time employee is one who regularly works at least 30 hours per week. II. The Employer Mandate cont…

  10. Seasonal Employees Seasonal employees must be considered when calculating whether an employer employs at least 50 full-time employees. However, the employer will not have to count them if (1) the employer’s workforce exceeds 50 full-time employees for 120 days or fewer during the calendar year; and (2) the employees in excess during that period were all seasonal. Further guidance is needed to determine who are considered “seasonal;” however, early determinations point to educational workers not being counted as such. II. The Employer Mandate cont…

  11. The determination of large employer status is performed each year by looking back at the preceding calendar year II. The Employer Mandate cont…

  12. If employer finds it was an applicable large employer, it must then determine whether it meets any of the criteria whereby it may owe a penalty tax. II. The Employer Mandate cont…

  13. Penalty tax will apply if: large employer fails to offer qualified coverage to substantially all of its full-time employees (and their dependent children); and one of those employees goes to the Exchange and obtains coverage; and that employee obtains premium subsidy II. The Employer Mandate cont…

  14. Penalty tax is assessed monthly and equals $2,000/12, multiplied by total number of full-time employees (minus the first 30). Section 4980H(a). II. The Employer Mandate cont…

  15. If large employer offers qualified coverage but it is not affordable or does not offer minimum value, and one of the full-time employees gets premium-subsidized coverage at the Exchange, then a penalty tax will be assessed equal to $3,000 per each full-time employee receiving such subsidized coverage capped at the tax amount in the first category. Section 4980H(b). II. The Employer Mandate cont…

  16. What is minimum value? There are three methods for making this determination, but in general, the plan must provide at least 60% value (Plan must pay at least 60% of costs) use the HHS calculator use IRS safe-harbor lists receive certification from actuary II. The Employer Mandate cont…

  17. What is affordable? In general, an employee’s monthly insurance contribution (for self-only coverage) is affordable if it is equal to or lower than 9.5% of employee’s household income. Further, if employer offers minimum value coverage to its full-time employees, it can use three different safe harbor tests to determine whether that coverage is affordable. employee’s W-2 rate of pay federal poverty line II. The Employer Mandate cont…

  18. How do dependents work into this tax? Employers do not have to offer or pay for coverage for spouses and dependents but to avoid the penalty tax, the employer must offer coverage with minimum essential benefits to employees and their dependent children. Keep in mind, employers do not have to pay for it nor does it have to be offered to spouses – only the employee’s children who are under age 26. II. The Employer Mandate cont…

  19. Employers need to determine which employees are full-time for purposes of the 4980H tax penalties II. The Employer Mandate cont…

  20. A full-time employee is one that regularly works at least 30 hours per week 30 hours also equals 130 hours of service in a calendar month No part-time employees included Determined by looking at periods of employee work on an ongoing basis, monthly, during the current year II. The Employer Mandate cont…

  21. Hours of service are counted Means each hour for which an employee is paid or entitled to payment Includes hours paid for time not worked while employee is on vacation, holiday, illness, jury duty, military duty and leave of absence II. The Employer Mandate cont…

  22. Hours of service are counted cont… Must use records of hours worked For non-hourly based pay, employer must either (1) count actual hours worked; (2) use a day-hour equivalent approach; or (3) use a week-hour equivalent approach where one week equals 40 hours Anti-abuse rule, cannot use alternative methods if reason is to understate the hours worked II. The Employer Mandate cont…

  23. Monthly determination using current year has its problems Month will have passed by time employer knows full-time and too late to correct for that month Voluntary safe harbor available II. The Employer Mandate cont…

  24. Safe Harbor for 30 Hours Measurement period Stability period Administrative period II. The Employer Mandate cont…

  25. Safe Harbor for 30 Hours cont… Measurement Periods standard measurement period used for ongoing employees initial measurement period used for new employees II. The Employer Mandate cont…

  26. Safe Harbor for 30 Hours cont… Stability Periods employee locked-in to status for period of time moving forward begins at end of measurement period II. The Employer Mandate cont…

  27. Safe Harbor for 30 Hours cont… Administrative Periods allows for administrative work begins at end of measurement period will overlap next stability period II. The Employer Mandate cont…

  28. Safe Harbor for 30 Hours cont… Counting Hours During Measurement Period hourly employees – count actual hours (include vacation, holiday, sick, jury duty, paid leave of absence) non-Hourly employees have three options actual hours if tracked 8 hour per day method 40 hour per week method if using payroll periods to determine hours worked, employer must coordinate end of year overlap and beginning of year overlap II. The Employer Mandate cont…

  29. Safe Harbor for 30 Hours cont… Educational institutions must credit hours during school break periods of greater than 4 weeks. use averaging rule to credit periods or disregard periods when school is not is session and employees are not expected to work may either exclude the break period from the average for the measurement period or may impute hours of service for the employment break period at a rate equal to the average week not part of break period (501 hour/year maximum) II. The Employer Mandate cont…

  30. Safe Harbor for 30 Hours cont… Special Employees Substitute Teachers Summer Workers Interns II. The Employer Mandate cont…

  31. Reporting obligations, IRC 6055, 6056, 78 Fed. Reg. 54996 II. The Employer Mandate cont…

  32. Various Reporting Obligations W2 Reporting of amounts of coverage If less than 250 reports, delayed Summary of Benefits Reports applicable to first Plan year beginning on or after September 23, 2012. Notice of Exchanges (October 1, 2013) 6055 and 6056 coming in 2015 II. The Employer Mandate cont…

  33. 26 USC 6055 Applicable to insurers, self-insuring employers and certain other providers (two requirements apply to calendar years beginning after 12/31/14) II. The Employer Mandate cont…

  34. 26 USC 6055 cont… Information to report to Government includes: Name of each individual enrolled in minimum essential coverage and the name and address of the primary insured or other related person who submits the application for coverage The TIN and months of coverage for each individual who is covered For employers, report the name, address and EIN of the employer maintaining the plan and whether coverage is through the SHOP Other information on the form (minimum essential coverage) II. The Employer Mandate cont…

  35. 26 USC 6055 cont… Information to report to Individuals includes: Statements containing policy number, name, address, and contact number for reporting entity, Everything required to be reported to the government II. The Employer Mandate cont…

  36. 26 USC 6056 (Employer will Report to IRS for calendar years beginning after 12/31/14) Certify whether it offers full-time employees (and their dependents) opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan Employer information including contact person Length of any waiting period with respect to such coverage Months during the calendar year for which coverage under the plan was available, Monthly premium for each full-time employee of the lowest cost option in each of the enrollment categories II. The Employer Mandate cont…

  37. 26 USC 6056 (Employer will Report to IRS for calendar years beginning after 12/31/14) cont… Employer share of the total allowed costs of benefits provided under the plan, Number of full-time employees for each month during the calendar year, Name, address, and TIN of each full-time employee and the months during which such employee (and any dependents) covered under health plan Must be filed by February 28 following each year of coverage or March 31 if filed electronically II. The Employer Mandate cont…

  38. 26 USC 6056 (Employer will provide statement to full-time employees for calendar years beginning after 12/31/14) employer information information required to be reported to IRS with respect to each full-time employee there will be forms each statement must be furnished to each employee before 1/31 of the succeeding calendar year to which the information relates II. The Employer Mandate cont…

  39. 26 USC 6055 and 6056 Currently delayed until 2015 Optional for 2014 Exchanges will use information to determine Employer Mandate obligation II. The Employer Mandate cont…

  40. III. Health Reimbursement Arrangements Consumer driven healthcare 100% Employer funded Carry-Over allowed Could be used to pay IRC 213(d) medical expenses including health insurance premiums

  41. III. Health Reimbursement Arrangements cont… • Affordable Care Act, Sec. 2711 • Integrated HRA allowed • Retiree and excepted benefit HRAs were originally exempt • Retiree still exempt with caveat – no more than 2 active employees may be covered

  42. III. Health Reimbursement Arrangements cont… Stand Alone HRAs Covered by Annual Dollar Limit Prohibition, 75 Fed. Reg 37188 at 37190; Joint (DOL, HHS, Treasury) ACA Implementation FAQ Part XI dated January 24, 2013 (“HRA FAQ”) Definition of “Integration” expanded in DOL Technical Release No. 2013-03 and IRS Notice 2013-54

  43. III. Health Reimbursement Arrangements cont… • Stand-alone HRA Allowed if Integrated With Another Group Health Plan • Two Integration Methods • Employer-Sponsored • Non-Employer Sponsored • May Need to Be Enrolled to Be Eligible • Cannot Be Individual Marketplace

  44. III. Health Reimbursement Arrangements cont… • Penalty for Non-Compliant HRA • Employers Given New Option to Provide Coverage • HRA May Not Count Toward Affordability or Minimum Value Requirement

  45. IV. Flexible Spending Account (FSAs) Affordable Care Act, Sec. 9005, adding Sec. 125(i) to the Internal Revenue Code (IRC) as amended by Sec. 10902 of that same Act, and further amended by Sec. 1403(b) of the Healthcare and Education Reconciliation Act of 2010; Sec. 9003 adding Sec. 106(f) to the IRC

  46. IV. Flexible Spending Account (FSAs) cont… • $2,500 FSA Salary Reduction Limit in Taxable Years On or After 1-1-13 > IRS Notice 2012-40 provided relief, requiring plans to comply in the first planyear commencing on or after 1-1-13 • “Over the Counter” (OTC) Medication Reimbursement Only With Prescription as of 1-1-11

  47. IV. Flexible Spending Account (FSAs) cont… • “FSA Excepted Benefit Rule,” DOL Technical Release No. 2013-03 • A Health Flexible Spending Arrangement (FSA) is a benefit designed to reimburse employees for medical care expenses (as defined in Code § 213(d), other than premiums) incurred by the employee, or the employee’s spouse, dependents, and any children who, as of the end of the taxable year, have not attained age 27. (IRC §§105(b), 106(f), 125)

  48. IV. Flexible Spending Account (FSAs) cont… d. “FSA Excepted Benefit Rule,” DOL Technical Release No. 2013-03 cont… • An FSA is a group health plan generally subject to ACA compliance rules. To be excepted from certain ACA compliance rules (including the annual dollar limit prohibition, preventive services and PCORI fees), an FSA must meet the previously existing test for being an “excepted benefit” under HIPAA. Specifically,…

  49. IV. Flexible Spending Account (FSAs) cont… d. “FSA Excepted Benefit Rule,” DOL Technical Release No. 2013-03 cont… HIPAA Excepted Benefit Test • Total payable from the FSA cannot exceed more than twice the salary reduction election (i.e. employer contributions of no more than the smallest salary reduction made by any employee), or, if greater, then no more than $500 plus the amount of the salary reduction election; and • The arrangement must meet the “availability condition” requiring that other non-excepted health coverage be available through the employer to the class of participants receiving the FSA benefit.

  50. IV. Flexible Spending Account (FSAs) cont… • “FSA Excepted Benefit Rule,” DOL Technical Release No. 2013-03 cont… • Health FSA Exception Narrowed • The interim final rules implementing the annual dollar limit prohibition had stated that a health FSA, as defined in Code § 106(c)(2), is not subject to the annual dollar limit prohibition. See 26 C.F.R. §54.9815-2711T(a)(2)(ii), 29 C.F.R. §2590.715-2711(a)(2)(ii), and 45 C.F.R. §147.126(a)(2)(ii).

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